Shifting Demographics

Market growth in the Canadian medical cannabis industry is driven by a number of factors:

The legislative and political environments are generally more favourable towards medical cannabis than in the past;

Physician and patient awareness of the benefits of medical cannabis is increasing and expected to continue to grow over time;

Stigmas generally associated with cannabis use are fading in Canada, the United States and elsewhere, especially as alternative delivery mechanisms are made available, and;

There is a significant increase in demand for pain relief driven by a rapidly aging population – the “baby boomers” – suffering from chronic ailments and looking to maintain their quality of life.

Chronic Pain and Opioid Use

With an aging population, the incidence of chronic pain increases.

According to the 2011 Census, 9.6 million persons, or close to three Canadians in every 10 (29%) are “baby boomers”. By 2031, all baby boomers will have reached the age of 65, markedly accelerating population aging in Canada.

According to the Canadian Pain Society, “pain” is the most common reason for seeking health care, and, as a presenting complaint, accounts for 78% of visits to emergency departments.

One in five Canadian adults suffers from chronic pain.

Although human studies on the therapeutic effects of cannabis have been significantly limited to date (largely due to restrictive legal regimes), the Company believes that opportunities for the use of medical cannabis in the treatment of chronic pain are significant.

Evidence is growing that cannabis can be an effective treatment for chronic pain, presenting a safe and viable alternative or adjuvant treatment to pharmaceutical treatments currently used for chronic pain conditions, including non-opioid analgesics, opioid analgesics, anticonvulsants, antimigraine drugs, tricyclic antidepressants, anti-inflammatories and steroids.

In Canada, chronic pain is primarily treated through the use of prescription opioid medications. While opioid medications are considered effective pain treatments, they pose potential risk of abuse, addiction and fatal overdose.

The prevalence of prescription opiates in Canada increased markedly between 2010 and 2014, with approximately 22 million opiates prescribed in 2014, up from approximately 18 million in 2010.

According to the Canadian Centre on Substance Abuse, the rate of opioids used as a pain reliever among Canadian seniors (aged 65+) was 16% in 2013.

Addiction to pharmaceutical opiates has been observed by the medical community as one of the common side-effects of extended use by patients (such as those suffering from chronic pain), with this addiction markedly increasing the incidence of overdose and mortality.

Data from the Office of the Chief Coroner of Ontario shows that opiate deaths in Ontario have increased dramatically between 1991 and 2010. The overall opiate-related mortality increased in Ontario by 242% between 1991 and 2010.

As of June 30, 2016, there were a total of 75,166 patients registered with 36 Licensed Producers under the (ACMPR). A Growth rate of 42% quarter over quarter.

More than 17,000 patients are registered with CanniMed Therapeutics Inc., which is up from 10,224 patients at the end of the second quarter 2016.

In 2015, approximately 310 patients registered with CanniMed Therapeutics Inc. per month. This number increased to more than 800 per month since CanniMed Therapeutics Inc. began selling cannabis oils in the first quarter 2016.

According to Health Canada, the total number of patients in the ACMRP (or successor programs) is expected to reach approximately 450,000 by 2024.

Growth of total number of patients is currently tracking well ahead of Health Canada’s growth estimates, with historical growth trends indicating a market potential increase in excess of 1,000,000 by 2024

Source: This chart was developed based on Health Canada data with the trend line developed based on Management estimates

ACMPR – Medical Cannabis Sales

According to Health Canada, sales of dried marijuana and cannabis oils in the 12 calendar months leading up to and including the second quarter of 2016 were 11,473 kg and 2,084 kg, respectively.

31% quarter over quarter growth in total volume of dried marijuana and cannabis oil, and a 157% quarter over quarter growth in cannabis oil volume.

The Company commissioned an independent third-party study in July 2014 to examine attitudes and behaviours related to medical cannabis among Canadian physicians. The survey measured physician prescribing habits, current views, concerns, knowledgeability, interest and attitudes towards governing bodies and available clinical information. A second study was commissioned by the Company in October 2016 with identical questions to the 2014 survey. The differences in prescribing details between the 2014 and 2016 Physician survey results suggest a shift in attitudes and prescribing practices among Canadian physicians:

Number of physicians currently prescribing up 9% over a two year period; number of physicians ‘who will not prescribe medical cannabis under any circumstances’ down 9% over the same period.

Physicians that are interested in prescribing but have not done so yet, or require more information before prescribing remain the same at 52%.

32% of physicians feel they are properly informed on medical cannabis, similar result from 2014.

Physicians are increasingly being approached by patients about prescribing medical cannabis with 78% indicating having been approached in the last 6 months, versus 48% in the 2014 survey.

Chronic pain and neuropathic pain were cited by prescribing physicians as the most common condition for which medical cannabis would be prescribed by them (2016 results).